The Influence of Tax and Non-Tax Costs on Book-Tax Reporting Differences: Public and Private Firms

Posted: 6 Aug 2000

See all articles by Lillian F. Mills

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Kaye J. Newberry

University of Arizona - Department of Accounting

Date Written: October 2000

Abstract

We provide archival evidence of the effect of tax and non-tax costs on book-tax reporting using tax return data on public and private manufacturing firms. Prior research suggests that managers should conform their book-tax income to minimize tax-related costs. However, book-tax reporting conformity can also impose non-tax costs. We find evidence that public firms have generally higher non-tax financial reporting costs that result in larger book-tax reporting differences. In addition, we find that debt imposes higher non-tax costs on firms that are privately-held or more financially distressed, and that non-tax costs associated with bonus plan thresholds and book income patterns affect public-managers' book-tax reporting. Our results extend prior studies that focus on conforming transactions. From a tax policy perspective, our results suggest that book-tax differences may be a less useful indicator of private firms' aggressive tax positions because they have fewer incentives to report non-conforming book income.

Keywords: Financial reporting, tax incentives, book-tax conformity, book-tax differences

JEL Classification: M41, M43, H25, J33

Suggested Citation

Mills, Lillian F. and Newberry, Kaye J., The Influence of Tax and Non-Tax Costs on Book-Tax Reporting Differences: Public and Private Firms (October 2000). Available at SSRN: https://ssrn.com/abstract=228340 or http://dx.doi.org/10.2139/ssrn.228340

Lillian F. Mills (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Kaye J. Newberry

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States
520-621-1252 (Phone)
520-621-3742 (Fax)

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